What’s exec comp disclosure?

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Executive compensation disclosures became a high-profile issue in the late 1990s due to record-breaking compensation packages regardless of company performance. The criteria for determining who is included in the report varies, and compensation packages for executives are more complex than for most workers.

In the late 1990s, the subject of executive compensation disclosures was suddenly a high-profile issue, both in the financial reporting industry and in the popular press. This change is due to an increase in the number of executives receiving record breaking compensation packages that appear to have been provided regardless of company performance. In the United States, this change represents a major shift in culture, as high executive compensation was previously a point of pride for many large companies, indicating great success.

The definition of who should be included in executive compensation disclosures varies by organization, but typically includes everyone at the vice president level and above. Some companies include the board of directors and senior leaders in their reports. The information is typically provided in the annual report and may be listed with or without employee names.

In the public sector, selection criteria for executive compensation disclosures are typically based on a specific dollar value of taxable income, typically $100,000 US Dollars (USD) and above. This method is used to accommodate a variety of position titles, which may be misleading as to the level of responsibility associated with the role. For example, the president of a small government-funded research institution does not have the same level of liability or indemnification as the president of a government-funded hospital. However, a senior police inspector may be included in this list, based on a combination of base salary and overtime.

The notes to the financial statements should provide details of the criteria for determining who is included in the executive compensation report and how this list was compiled. There are a range of compensation packages which include items not generally considered compensation. In the interest of fairness and comparability, the Accounting Standards Board reviews the statements and the financial auditors are responsible for ensuring that the statement accurately reflects the true compensation.

Compensation packages for most workers are a combination of wages, benefits, and taxable minimum benefits. The full value of the compensation is included in the annual tax return and employees are required to pay personal income tax on this value. For executives, the packages are usually much more complex.

A great example of complex executive fee disclosures include paying in stock options that have not been cashed in and using a company car, plane, and staff for personal needs. This may include a company-paid nanny for a working mother, an apartment suite to use after late night meetings, or a paid driver. These items are generally not included on a personal tax return and receive different tax treatment.




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